'The Dogs Bollocks' or just 'The Bollocks' does mean good but it has nothing to do with the dogs ability to lick its own. Rather if you follow an un doctored dog down the road you will see that its bollocks are quite prominant - hence the expression 'stands out like dogs balls' therfore 'The Dogs Bollocks' literally means 'outstanding' ie very good indeed.

That film about why dogs lick their own bollocks was the dogs bollocks, can't wait for it to come out on DVD so I can watch it again.